Chancellor Radio is betting its money on the Internet. The broadcasting giant, which will control 469 stations in 105 markets following its merger with Capstar Broadcasting, has made the Web a central part of its business strategy. Over the next two years, Chancellor will create sites for each of its local stations, enabling it to offer its local and national advertisers tremendous opportunities for targeting and interacting with its 66 million listeners. Chuck Armstrong, Chancellor's senior vice president of entertainment and new media, says that advertising generated through the Web sites will reap a profit for the parent company within just 18 months.
Chancellor is at the forefront of a business that analysts say is not only a natural for local radio from an audience perspective, but a bonanza from an advertising and revenue perspective as well. Imagine 15 million commuters listening to Chancellor stations during morning drive time. A Gap spot comes on encouraging listeners to register to win a pair of khakis through the station's Web site. Once at work, they type in the URL, click on an icon, and answer a few questions to enter the contest. Gap connects with millions of potential customers and, in turn, Chancellor amasses a detailed database on its listeners and their behaviors that can be used to offer advertisers highly targeted opportunities. The final payoff, says Forrester Research's senior analyst Mark Hardie, will be taking a piece of the $38 billion recording industry's profits by allowing Web surfers to sample music at radio Webcasting sites and then purchase tunes - with a percent of each sale going to Chancellor - with a click of the mouse.
Currently about 7,000 of the 12,000 U.S. radio stations have a Web site, and about 1,000 of those are Webcasting. A recent Arbitron study shows that 13 percent of all Americans listened to audio over the Web during the last six months of 1998, double the number listening in 1997. At that rate, one-quarter of the U.S. will have sampled audio over the Web by 2000, according to the study. People going on the Web to retrieve music-related information or listen to music number 19.7 million in 1998, according to Cyber Dialogue. The highest proportion of these music aficionados are between 18 and 29 years old (45 percent). But while this is a younger demographic than the general online population, analysts expect that as streaming audio technology becomes more prevalent and easier to download, the number of older users going online to listen to music will increase.
And as older users increase, so too will the number of people listening from work, where Internet connections are fast and radio reception is weak. This would be a windfall for radio, since high CPMs could be extracted for these gainfully employed listeners. "Before this, there was no real way for an advertiser to bypass the `no soliciting' sign on the front door," says Jae Kim, an analyst at Paul Kagan Associates.
Arbitron asked people who go to radio station sites what they were looking for: 70 percent wanted information on community events; 69 percent, concert information; 61 percent, titles and artists of songs; 59 percent, to listen to the station; and 53 percent, to see advertisers' products. Radio stations that supply surfers with this type of information can become what analysts refer to as local portals, and can compete with large portals such as search engines. "For example, Chancellor has more than 60 million listeners - which rivals Yahoo," says Peter Clemente, president of Cyber Dialogue, which is supplying research and database management information for Chancellor. "You can do more than just provide music, information, and commerce - you can offer other types of products that listeners are interested in."
Unfortunately, says Greg Verdino, Arbitron's vice president and general manager for Internet information, not enough radio stations are creating sticky sites that visitors come back to. Few of the people interviewed in Arbitron's study bothered to bookmark the radio sites they had visited. Chancellor found the same thing with its properties: "People were coming to the site, but not coming back," says Armstrong. The company is now beta testing its Philadelphia sites to find out exactly what appeals to its audiences before installing a complete network of sites for all its radio properties. "We're offering e-mail, news, sports. We want to find out what they want to do. Each time we roll out a new sticky app, we'll promote it over the air."
Other analysts say the components of attracting and keeping surfers aren't unknowns. It's just a matter of laying out the necessary amounts of money - paying for an audio stream can cost a local station between $1,000 and $5,000 a month - and personnel to develop such sites. "Most stations don't have the techies," says Hardie, "so it falls on the shoulders of interns or the morning jocks. Big dollars are made through big investments."
And that's what Chancellor's got going for it. To bankroll the operation, the radio group plans to team up with Internet service providers, who will pay the station for each new subscriber it sends their way. "AT&T would love to have a local media programmer," says Armstrong. "It's the largest local brand in the world, but has no local presence."
Once the network of sites is in place and Chancellor can guarantee national advertisers reach, the scenario is set for big promotions. Hardie foresees an on-air station jock promoting a vacation giveaway during morning drive time, and directing listeners to the site. He points out that listeners could easily forget the 800 number that an advertiser would give over the air, but the station's Web site would be a constant. Radio will aggregate the audience and send them to the Web, says Clemente of Cyber Dialogue, and "the Internet [will] drive action - the site acts as the relationship hub."
And once that relationship is in place, the network will be set to reap the profits of music e-commerce. "The ultimate goal is to provide proof that when radio plays music, the music sells and [radio] deserves some kind of revenue sharing," says Hardie. "It's not a snap of the finger. If playing the song sells 20 copies, the record companies won't pay any attention. But if the network drives 15 million CD purchases - it deserves remuneration."